Corporate Social Responsibility and Labor Investment Efficiency

Using a large dataset of U.S. firms and covering the period 2004-2017, we investigate Corporate Social Responsibility (CSR) influence on a firm's employment decisions. In doing so, panel data regression is employed with the aim of exploring the effects of CSR on abnormal net hiring. Our main findings indicate that CSR hardly affects abnormal net hiring in the form of over-investment (i.e., over-hiring and under-firing). However, CSR appears to be a pervasive determinant of under-investment, particularly in what concerns under-hiring. The effect of CSR on labor under-investment appears to be centered in firms exhibiting extreme positive CSR performance, i.e., firms ranked in the fifth quintile of CSR scores in a given year. Notably, our results reveal greater sensitivity of under-investment to CSR performance in firms exhibiting lower financial constraints and lower financial slack. Industries with high-skilled employees and low substitutability between labor and capital also exhibit a greater impact of CSR performance on under-investment. Our interpretation of the results is that lower flexibility in employment decisions makes CSR firms more prone to under-hiring